September 21, 2020

Rise and fall of the Chinese shared bike | Trends

Rise and fall of the Chinese shared bike | Trends


When more than twelve million Chinese people agree to do one thing, it is that something happens. And that is the number of people who, in recent days, has set in motion the procedures to recover the deposit they deposited in their electronic purses from Ofo, the company that launched the first shared bike service in China. The long queues that have formed in front of the company's offices in Beijing certify that users do not trust the electronic system that promises the automatic return in 15 days of 99 or 199 yuan (13 or 25.5 euros) disbursed .

And reasons do not lack to distrust. Because, despite having achieved more than 2,200 million dollars from multiple local and foreign investors, Ofo flirts with bankruptcy. In just a couple of years, it has gone from being the fashion 'start-up', called to revolutionize urban mobility, to owe tens of millions of dollars to its suppliers, whose demands have even provoked the founder and CEO, Dai Wei, has gone to swell the blacklist of entrepreneurs who China does not consider reliable. This means that you will not be able to acquire properties or vehicles, you will be banned from traveling in business class and faster trains, and you will not be allowed to stay in hotels with stars.

The founder and CEO of Ofo, Dai Wei, has gone to swell the blacklist of entrepreneurs that China does not consider reliable.

However, this news should not surprise anyone. Although Ofo is one of the two main shared bicycle companies of the Asian giant – along with Mobike – it has been hampered by an unsustainable business model that has shattered a magnificent idea. In fact, it has managed to change the transport habits of many citizens, especially in large cities. Students and workers use bicycles shared on a regular basis in what is known as 'last kilometer mobility'. That is, to cover the distance between your home and the nearest bus station or subway, or between the latter and your study or work center.

To a large extent, its success is due to the ease of use of the service and the practicality that results. Unlike municipal bicycles with anchors, those that have been distributed by Chinese companies are distributed throughout the city. There are very few restrictions to park them, and the municipalities have improved the infrastructures destined to it. So you never have to walk a lot to find one. Moreover, most are where it is needed.

Then, always using a mobile application, renting it is simple. All you have to do is scan the QR code printed on the bicycle labels with your phone to obtain the code that opens the lock – in the case of Ofo – or to unlock it automatically – in Mobike-. Finally, the last attraction lies in its price, because it is a cheap service: it costs only between 6 and 12 cents for every half hour of use.

The success of Ofo and Mobike has caused in China the birth of several dozens of competitors who have copied the model.

However, this model is a clear example that a brilliant business theory can be shattered by the reality of its horrific practical implementation. As has happened on other occasions, the success of Ofo and Mobike has caused in China the birth of several dozens of competitors who have copied the model and whose added value has been only the price of the service. To the extent that some offered it for free. On the other hand, this war has caused a huge oversupply – only those two companies have deployed more than 20 million bicycles – which has resulted first in sidewalks collapsed by bicycles that nobody uses and then in mountains of these vehicles in improvised landfills .

Logically, most companies have disappeared in what seems more a scam to run away with the money of unsuspecting investors than an attempt to compete in a sector in the process of maturation. The consolidation has been so brutal that a score of companies have disappeared and there are barely half a dozen in the market. Analyzing the waste of resources that this madness has caused will be as complicated as it is interesting.

And when the fight seemed like two, Ofo has shown his true face. He has no cash. This is what his CEO recognized last Wednesday, when the possibility of declaring bankruptcy began to gain strength. "This year we are suffering a huge cash flow problem. We need to convert each yuan into three to return deposits to users, pay debts with suppliers, and maintain operations, "Dai said in a letter addressed to employees.

If finally Ofo goes down in history, the sector will confirm the monopoly tendency or the oligopoly of what is considered 'new economy'

The executive attributed the problems to an incorrect analysis "of the changes in the environment since last year" and to "the weakening of the sector of shared bicycles, which has caused investors to increase their caution". But the truth is that his business model had no head or tail, and could only be maintained as a pyramid scheme based on adding investors with money to burn.

If Ofo finally goes down in history, the sector will confirm the monopoly or oligopoly tendency of what is considered a 'new economy'. "We believed that the Internet was going to create a more diverse, competitive, and democratic world. However, it turns out that it tends towards the monopoly of all life. The consolidation process that leads to that is more acute in China because companies here need a huge user base to achieve benefits. When they do, it's almost impossible to compete with them, "explains Li Haitao, a professor of finance at the Cheung Kong Graduate School of Business (CKGSB).

This is the same process that has caused, for example, that Didi Chuxing has eaten its competitors -including Uber- and that it is now the only car rental company with a driver; or that in the e-commerce sector, smaller players seeking a niche have disappeared, overwhelmed by the force of Alibaba -which is in the shareholding of Ofo- and of JD; and that between the travel agencies Ctrip has finished acquiring its rivals Qunar and Elong. Once they have cemented their survival and consolidated their dominant position, prices rise and alternatives disappear. In this case, the Chinese are already getting the idea that, in the future, they may only be able to use the orange Mobike bicycles.

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